Got cash? Smart things to do with your holiday loot
If you were one of the lucky people who got cash instead of stuff this holiday season (58% of folks said they planned to give money), don’t spend it all yet! (Not even on a gym membership, resolution-makers—there are cheaper ways to shed those pounds.) Instead, consider these wiser investments:
Cut down credit card debt
Paying only the minimum each month? Anything extra you can throw toward your bill now will save you money in the long run. Let’s say you have a $1,000 balance at a 16% interest rate. Paying a $20 minimum each month, it would take you nearly seven years to rid yourself of that debt and cost you $620 in interest. But if you put $200 of Christmas cash toward your balance this month, your payments on the remaining $800 would take you less than five years and save you about $300 in interest—even if you went back to paying just the minimum. Now that’s something to be merry about.
Add to (or start) your emergency savings fund
Think of this option as gifting yourself peace of mind: Should anything happen to your earning power, you’ll be fine. Aim to save six months’ worth of expenses—at least. The average stint of unemployment is nearly 8 months long, so the more you can save, the better.
Put a little extra in your retirement account
By upping the ante on your 401(k) or IRA contributions this year, you’re setting yourself up for a comfy retirement and potentially reducing what you’ll pay in income tax next year. Here again, this investment can balloon over time. If you throw in an extra $500 this year, it could translate to an extra $4,000 over the next 35 years, assuming an average annual interest rate of 6%.
Buy yourself something you want
I’m not all doom and gloom! Go ahead and treat yourself to that Kindle or iPad you’ve been eyeing—as long as the purchase doesn’t mean financial harm for you. It’s important to have fun with your money sometimes because just like crash dieting, crash saving is bound to backfire.
What will you do with your holiday loot?